18

Principles of Marketing

Creating Competitive Advantage

Learning Objectives
After studying this chapter, you should be able to: 1. Discuss the need to understand competitors as well as customers through competitor analysis 2. Explain the fundamentals of competitive marketing strategies based on creating value for customers 3. Illustrate the need for balancing customer and competitor orientations in becoming a truly marketcentered organization

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Chapter Outline
Competitor Analysis Competitive Strategies Balancing Customer and Competitor Orientations

1. 2. 3.

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Competitor Analysis
Identifying Competitors Competitors can include: All firms making the same product or class of products All firms making products that supply the same service All firms competing for the same consumer dollars
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Competitor Analysis
Identifying Competitors Competitor myopia refers to a firm focusing on what it considers to be its direct competition and not being aware of indirect or new competitors

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Competitor Analysis
Identifying Competitors Industry point of view refers to competitors within the same industry Market point of view refers to competitors trying to satisfy the same customer need or build relationships with the same customer group
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Competitor Analysis
Identifying Competitors Market point of view is considered to provide a broader set of actual and potential competitors, and a competitor map illustrates the steps buyers take in obtaining the product

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Competitor Analysis
Identifying Competitors Competitor map highlights both competitive opportunities and challenges facing the firm Center is the list of consumer activities First outer ring lists main competitors Second outer ring lists indirect competitors

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Competitor Analysis
Assessing Competitors

Competitors Competitors Competitors Competitors

objectives strategies strengths and weaknesses actions and reactions

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Competitor Analysis
Determining Competitors Objectives Competitors objectives include: Profitability Market share growth Cash flow Technological leadership Service leadership
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Competitor Analysis
Identifying Competitors Strategies
A strategic group is a group of firms in an industry following the same or similar strategy in a given target market Competition is most intense within a strategic group Competition among strategic groups is due to overlapping customers and lack of perceived differentiation and expansion of one strategic group into new segments
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Competitor Analysis
Identifying Competitors Strategies
Companies need to understand the competitors ability to deliver value to its customers

Product quality Product features Customer service Pricing policy Distribution coverage Sales force strategy Promotion programs Financial strategies R&D

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Competitor Analysis
Assessing Competitors Strengths and Weaknesses

Primary data Secondary data Personal experience Word of mouth Benchmarking is the comparison of the companys products or services to competitors or leaders in other industries to find ways to improve quality and performance
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Competitor Analysis
Estimating Competitors Reactions Marketing managers need to develop an understanding of a given competitors mentality, culture, values, and way of doing business to anticipate how the competitor will react to the companys marketing strategies
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Competitor Analysis
Selecting Competitors to Attack and Avoid
Customer value analysis determines the benefits that target customers value and how customers rate the relative value of various competitors offers. Identification of major attributes that customers value and the importance of these values Assessment of the companys and competitors performance on the valued attributes
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Competitor Analysis
Close or Distant Competitors Close competitors resemble the company the most

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Competitor Analysis
Good or Bad Competitors
Good competitors: Increase total demand Share costs of market and product development Legitimize new technologies Serve less attractive market segments Provide more product differentiation Lower the anti-trust risk Improve bargaining power versus legislators and regulators
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Competitor Analysis
Good or Bad Competitors Bad competitors: Try to share rather than earn in the market Take large risks Create disruption

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Competitor Analysis
Designing a Competitive Intelligence System

Identifies competitive information and the best sources of this information Continually collects information Checks information for validity and reliability Interprets information Organizes information Sends key information to relevant decision makers Responds to inquiries about competitors
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Competitive Strategies
Approaches to Marketing Strategy Stages of approaches to marketing strategy include: Entrepreneurial marketing Formulated marketing Intrepreneurial marketing

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Competitive Strategies
Approaches to Marketing Strategy
Entrepreneurial marketing involves visualizing an opportunity and constructing and implementing flexible strategies Formulated marketing involves developing formal marketing strategies and following them closely Intrepreneurial marketing involves the attempt to reestablish an internal entrepreneurial spirit and refresh marketing strategies and approaches
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Competitive Strategies
Basic Competitive Strategies Michael Porters four basic competitive positioning strategies Overall cost leadership Differentiation Focus Middle-of-the-roaders
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Competitive Strategies
Basic Competitive Strategies Overall cost leadership strategy is when a company achieves the lowest production and distribution costs and allow it to lower its prices and gain market share

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Competitive Strategies
Basic Competitive Strategies Differentiation strategy is when a company concentrates on creating a highly differentiated product line and marketing program so it comes across as an industry class leader

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Competitive Strategies
Basic Competitive Strategies Focus strategy is when a company focuses its effort on serving few market segments well rather than going after the whole market

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Competitive Strategies
Basic Competitive Strategies Porter believed that companies that pursued a clear strategy would achieve superior performance and that companies without a clear strategy would not succeed Porter considered them to be middle-of-theroaders
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Competitive Strategies
Basic Competitive Strategies Michael Treacy and Fred Wiersema suggest companies can gain leadership positions by delivering superior value to their customers in three strategies or value disciplines Operational excellence Customer intimacy Product leadership
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Competitive Strategies
Basic Competitive Strategies Operational excellence refers to a company providing value by leading its industry in price and convenience by reducing costs and creating a lean and efficient value delivery system

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Competitive Strategies
Basic Competitive Strategies Customer intimacy refers to a company providing superior value by segmenting markets and tailoring products or services to match the needs of the targeted customers

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Competitive Strategies
Basic Competitive Strategies Product leadership refers to a company providing superior value by offering a continuous stream of leading-edge products or services. Product leaders are open to new ideas and solutions and bring them quickly to the market.
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Competitive Strategies
Basic Competitive Strategies Product leadership refers to a company providing superior value by offering a continuous stream of leading edge products or services. Product leaders are open to new ideas and solutions and bring them quickly to the market.
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Competitive Strategies
Competitive Positions

Market Market Market Market

leader strategy challenger strategy follower strategy nicher strategy

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Competitive Strategies
Competitive Positions
Market leader is the firm with the largest market share and leads the market price changes, product innovations, distribution coverage, and promotion spending Market challengers are firms fighting to increase market share Market followers are firms that want to hold onto their market share Market nichers are firms that serve small market segments not being pursued by other firms
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Competitive Strategies
Market Leader Strategies

Expand total demand Protect their current market Expand market share

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Competitive Strategies
Market Leader Strategies
Expanding Total Demand

Expand total demand by developing: New users New uses More usage of its products

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Competitive Strategies
Market Leader Strategies
Protecting Market Share Protect current market by: Fixing or preventing weaknesses that provide opportunities to competitors Maintaining consistent prices that provide value Keeping strong customer relationships Continuous innovation
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Competitive Strategies
Market Leader Strategies
Expanding Market Share Expand market share by: Increasing market share in served markets, thus increasing profitability Producing high-quality products Creating good service experiences Building close customer relationships
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Competitive Strategies
Market Challenger Strategies Challenge the leader with an aggressive bid for more market share Play along with competitors and not rock the boat

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Competitive Strategies
Market Challenger Strategies Second mover advantage occurs when a market follower observes what has made the leader successful and improves on it Challenges firms its own size or smaller

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Competitive Strategies
Market Nicher Strategies
Ideal market niche is big enough to be profitable with high growth potential and has little interest from competitors Key to market niching is specialization Market Customer Product Marketing mix
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Balancing Customer and Competitor Orientations

Companies need to continuously adapt strategies to changes in the competitive environment Competitor-centered company Customer-centered company Market-centered company

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Balancing Customer and Competitor Orientations

Competitor-centered company spends most of its time tracking competitors moves and market shares and trying to find ways to counter them Advantage is that the company is a fighter Disadvantage is that the company is reactive

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Balancing Customer and Competitor Orientations

Customer-centered company spends most of its time focusing on customer developments in designing strategies Provides a better position than competitorcentered company to identify opportunities and build customer relationships
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Balancing Customer and Competitor Orientations

Market-centered company spends most of its time focusing on both competitor and customer developments in designing strategies

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The End